Gary Shilling, president of A. Gary Shilling and Co., says individuals should stick with a "risk-on" investing strategy because stocks are still a buy. But he warns that are risks that could drag down financial markets and the global economy.

“You have Fed tapering and problems with the emerging markets—we’re really in a world where people are either forgetting reality or they are correctly anticipating that these problems really don’t matter and that the economy is, for the first time in years, actually going to grow more rapidly,” says Shilling in the video above.

Related: Putin blinks, stocks rally: Ukraine crisis shows power of global markets

Shilling still likes Treasuries (he has been bullish on Treasuries for decades) even though he believes deflation is lurking. He has broadened his portfolio to include defense stocks as a hedge against this deflaton risk.

“You’ve got stocks that are really not supported by fundamentals and...with the uncertainty over Obamacare, with concern about minimum wage and income polarization...I play it defensively," he says.

Related: Bull market celebrates its 5th birthday: But is the party over?

For Shilling, playing it defensively means investing in healthcare, utilities and consumer staples.

Is there anything that could end this rally? Only some kind of shock like a spike in oil prices, very serious military conflict between Russia and Ukraine, or contagion from emerging markets says Shilling.

“Nobody is going to walk away from what has been a tremendous rally in stocks starting in March of 2009," he notes.

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